A sign notifying customers of purchase limits for baby and toddler formula at a Walgreens store in Las Vegas. Photo / Getty Images
Now that a2 Milk has finished its financial year, what can investors expect from the former high-flier when it reveals its result?
Hong Kong-listed infant formula company Ausnutria - an a2 Milk peer - issued a profit warning early this month, saying there would be a "significant decrease in profits" for the six months to June.
"Due to lower birth rate in Mainland China and stringent anti-epidemic measures in some regions, the infant formula industry faced unprecedented challenge in the first half of 2022," said Ausnutria.
According to market data company AC Nielsen, the industry's overall sales from January to April 2022 decreased by 4.4 per cent year-on-year, while sales volume fell by 6.2 per cent.
Overall demand in the industry is decreasing, Ausnutria said.
Broker Jarden has reviewed its operating forecasts for China infant formula, for both second-half performance and the longer-run issues of declining birth rates and increased competition.
Adrian Allbon, director, equity research at Jarden, said the second-half performance of a2 Milk - whose success has been closely tied to its popularity in China - was "probably" on track.
"Against the backdrop of challenging market issues including Covid-related lockdowns and lower birth rates, which impacted Ausnutria with its July profit warning, it looks as though a2 Milk is on track broadly to deliver second-half expectations, based on our analysis of port data and recent 618 [June 18] sales festival performance.
"If our analysis proves accurate, then this is a strong execution performance and further proof that the a2 Milk brand remains healthy from a demand perspective," Allbon said in a research note.
Longer term, birth rates in China remained a key headwind, he added.
Jarden's modelling suggested that in 2021 and 2022, birth rates were at the low end of a2 Milk's scenario range as described at the company's investor day last October - implicit in its growth ambition to return the business to $2b of sales by the 2026 full-year.
"The longer dated issue is also the demographic pressure from the single child policy of the past," he said.
Both Fonterra and a2 Milk have been left in the dust by French food group Danone and Australia's Bubs in terms of winning regulatory approval to land much-needed infant formula in the US, where there is a chronic shortage.
The US Government has responded with temporary Food and Drug Administration approvals for new players, creating a short-term opportunity to test the market entry using what are known as Women, Infants, Children (WIC) waivers.
But while the US infant formula shortage has hit the headlines, market participants are unsure whether there is any real advantage in sending product to the US at this stage.
Oyvinn Rimer, senior research analyst at Harbour Asset Management, doubted FDA approval would benefit a2 Milk in the short run.
"Even if they got it, I think it would be totally immaterial," he said.
"The nature of the whole WIC facility is temporary only, so if you have a couple of shipments of product it would be one-off in nature."
The US market's structure is very different from China's.
"It's highly regulated with largely a central buyer. Eighty to 85 per cent of infant formula is subject to some form of price control, and there are four big players that dominate.
"The market could get very excited from an announcement but it would almost be a distraction - and immaterial from a profit and loss perspective," Rimer said. "It's not going to move the dial."
He expects the second-half result to June 30 to reflect a rebalancing of inventory and a $60 million to $65m revenue contribution from a2 Milk's majority-owned manufacturing facility, Mataura Valley Milk.
Jarden's Allbon said preliminary analysis suggested that if a2 Milk could gain FDA approval for an order size of about 1-2 million tins, it could generate one-off Ebitda of $20-$30 per tin for the 2023 full-year, assuming the company gains a WIC waiver.
"While this could result in its US operations moving towards profitability, future profitability at this level seems unlikely if the WIC structure reverts.
"Based on the limited information to date, we see the US opportunity as a useful experiment for a2 Milk to test the market but, ultimately, further commitment or sustainable value uplift requires more clarity on how the US industry structure will settle and whether new entrants will be encouraged to stay."
Shares in a2 Milk peaked at $21.51 two years ago but have since slumped to around $5.
A2 Milk's result is due out in late August.
KPMG Corporate Finance is seeking an Aussie retailer or private equity firm to buy Kiwi fishing and boating goods retailer Burnsco, according to an Australian media report.
Encouraged by a spurt of Australian companies shopping for Kiwi assets, such as Ampol's purchase of Z Energy, KPMG is looking for Australian buyers keen to add a New Zealand retailer to their portfolio, reported the Australian Financial Review (AFR).
"Tyrekickers reckon they're keen to test Burnsco's stated growth plans, which would be important given the size of the New Zealand market," the AFR said.
Burnsco - a 100 per cent Kiwi-owned and managed business - says it is New Zealand's biggest seller of marine, RV and motorhome accessories.
The 130-year-old company has 16 stores from the Bay of Islands to Christchurch.
Asked to comment on the report, KMPG declined.
Spark's sale of 70 per cent of its cell tower network to the Ontario Teachers' Pension Plan Board, for $900m, has not done its share price any harm.
The telco's shares traded at just over $5 in the past few days - their highest point since August 2020.
Analysts expect the deal to finally lead to a bump in Spark's long-static dividend, and say even a modest increase in the payout could be the catalyst for the share price to tick up.
Spark shares were already well-supported by investors seeking safe haven utilities in the current market downturn.
Recessionary risks appear to be rising, and with retailers ultimately reliant on consumers' spending habits, periods of economic weakness can meaningfully affect the bottom line, Forsyth Barr said.
But the broker said the market may be overly cautious — retailers' share prices have on average declined by 21 per cent since late last year.
Forsyth Barr analysed data on each of the retail companies it covers in an attempt to quantify the relationship between GDP and earnings.
"We find KMD Brands and The Warehouse are the most exposed to the economic cycle," it said.
"On the other hand, Restaurant Brands and My Food Bag, operating in staple segments, are likely to be more resilient.
"We recognise that a degree of caution is warranted as consumers look likely to face increasing costs of living and tighten discretionary spending," the broker said.
Briscoe Group's strong day came at The Warehouse Group's expense.